We are pleased to present, in installments, a very rare yet significant book written by former Congressman Henry George Jr. in 1905.

Special Government Grants

Let us pass to the third class of privileges, that of special government grants.

Observe transportation. It will be remembered that before he became an iron and steel master, Mr. Carnegie was a railroad man. He was the western superintendent of the Pennsylvania Railroad, stationed at Pittsburg, a city established at the junction of the Allegheny and Monongahela rivers, in the heart of the iron ore, soft coal and natural gas belt. At this period the Standard Oil Company was commencing its notorious career through the use of the railroad rebate. That insidious form of favor had not as yet so proved its deadly power as to arouse general and bitter resentment and cause the making of express laws to prohibit it. But that proof came soon. For the rebate principle was simply for favored users to receive back secretly from the railroad part of the payment openly made on shipments under the regular published schedule of rates — the rates charged to all rival shippers.

Mr. Carnegie was not unfamiliar with the workings of the rebate principle, and it is scarcely probable that he and the highest officials of the Pennsylvania Road did not avail themselves of it when, organized as an outside group, they jointly went into iron and steel bridge and rail making with large and successive contracts from the Pennsylvania, Fort Wayne and other roads.

If the various Carnegie iron and steel companies did not have the advantage of the rebate after it had been prohibited by law, yet they did have a similar advantage — a discriminating rate. For, owing to the stimulus of special contracts for products and rebates on the shipping of the latter, together with the natural energy and abilities of Mr. Carnegie and the men associated with him, the Carnegie plants in the development of the trade rapidly grew into great establishments. They became the larger when the policy was commenced of acquiring all the best quality and most conveniently placed natural materials. With an immense output from his furnaces and mills at his disposal, Mr. Carnegie could demand in lieu of rebates, special rates from the railroads, on the ground that he was a bigger shipper than other steel makers. Even to this day the railroad managements do not hesitate to say that they should make a lower rate to the large than to the small shipper.

Ultimately the Carnegie amalgamation acquired or built short, connecting railroads. One of these runs between Pittsburg and Lake Erie. In conjunction with it a fleet of boats is operated for the carriage of ore and products. The United States Steel Corporation, which absorbed the Carnegie combination, now possesses these roads and boats and other roads and boats besides, joining the steel plants with the several important railroad systems.

In these circumstances it is idle to suppose that the railroads do not offer an important advantage to the Steel Trust, as against the smaller steel manufacturing shipper.

And the Steel Trust is but a single type of the favored ones.

We have seen how the Standard Oil Company, starting with secret railroad contracts for big rebates in consideration of large guaranteed shipments of oil, had merely to arrange to supply refined oil to the distributing centers in great quantities at low prices to destroy its rival refiners. Having killed or absorbed competing refineries, and thus obtained control of the refining of oil, the Standard then proceeded to discriminate against, to bully, or to cajole oil well owners, until it acquired a vast source of supply. Controlling this source, and the refining, it was then possible, using the railroad rates as an additional club, to embarrass the pipe lines and soon to absorb them.

Then possessing the oil lands — or at least the most convenient of them — the refineries and the pipe lines, the Standard successfully demanded larger rebates or discriminations from first one railroad and then another, the penalty of refusal being reduction of the great Standard shipments. The enormous profits obtained in this way enabled the Standard-Rockefeller group to enter the railroad world as large stockholders, bond owners, directors, controllers and manipulators, and from the railroad to enter the banking, the stock-speculating and the stock-juggling worlds, and also a considerable number of industrial lines.

See what the railroads have done for the Meat Trust. They have given special rates and special despatch to lines of stock and refrigerator cars owned by a combination of great meat packers, whose headquarters are in Chicago and Kansas City. As a consequence, not only have these packers been able to undersell and destroy general competitors, but, because they have had no rivals, they have further been able to put down the prices they would pay ranchmen for stock on the hoof; while, on the other hand, they have, owing to their great control of the general supply, put up prices to the consumer of dressed meat. Indeed, they have been able in a multitude of instances to destroy local rivalry by refusing to supply with their products retail butchers who dealt in similar products from any other source.

Growing out of this, we have seen the scandals that have come to light in the carriage of fruit — how the Meat Trust, with the knowledge and help of the Santa Fe and the Southern Pacific railroads, dictated terms and took control of the very important southern California fruit-carrying trade. The Meat Trust’s refrigerator cars had advantage over all others, indeed, practically monopolizing that kind of traffic.

Every one with the least experience in railroad affairs knows that the railroads, as they are operated, work for the overwhelming advantage of certain great shippers, just as if certain city merchants with much trucking to do should have a monopoly of horse-drawn vehicles, while their competitors were unable to get anything save man-pushed wheelbarrows.

Besides this discrimination which works such a hardship against general industrial and commercial businesses and to the advantage of an inside favored few, the railroads bear with great weight and manifest inconvenience upon the multitude of travelers. The policy is not to give the maximum of accommodation at the minimum of charge, but the reverse — the minimum of accommodation at the maximum charge. Instead of being capacious, convenient public highways, compatible with advancing civilization, they are of the nature of old-fashioned toll-roads, where gates swung open only on the payment of high charges, regardless of the condition of the roadways.

The question is, How shall the railroad service be divorced from these evils?

Surely not by the appointment of courts or commissions to fix rates or otherwise radically interfere with their management, if the ownership and control of these railroads are to remain in private hands. Either the people as a whole must assume ownership and management of these public steel highways, as they have of the other highways, or else they must let private ownership and management alone.

Experience shows that all public partnerships with private monopolies are signally detrimental to public interest. Everybody’s interest becomes nobody’s interest, while the private interest is always alive and active, turning all things to its own profit. The establishing of regulating courts and commissions is only to set up instruments to be used by the railroad companies against the public, for the railroads will devote themselves with keenness and assiduity to the business of electing, having appointed, buying, or otherwise controlling the judges and commissioners.

The recent exhibition of a New York State Railroad Commissioner who desired reappointment should be a warning. He presented to the Governor a petition signed by the presidents or other high officials of the largest railroad companies in the State, and of bankers and speculators dealing in railroad corporation securities! How could such a man adjust railroad fares or look to the convenience of the public, save as his patrons, the railroads, should approve?

Therefore railroads and all other forms of public highway, where free competition cannot be maintained, should not be in private, but in public hands. And this applies to local as well as to inter-community and inter-State roads. It further applies to pipe lines and tunnel lines and wire lines of whatever kind used in the service of the public.

A broad principle to be laid down is that all natural monopolies — enterprises which are indispensable to civilization, but which are not open to general and permanent competition, and which of necessity must center in few hands, should be publicly owned and controlled. Any departure from this principle can only be on the ground of expediency, which is invariably weak and dangerous.

If it be said that the people are not to be trusted with functions so vital to complex civilized life, then it is also to be said that they are not to be trusted with self-government. Of course, if they undertake to conduct railroads, they must be watchful of their public servants. This is only the same as saying that if they venture on self-government they must be vigilant to govern, and not to be governed.

But it is always to be remembered that with the removal of the railroads and other public highways from private ownership and control, a great, confusing, corrupting element in the general politics in America will be removed. The considerable addition to the civil servants that public operation will bring, will, in its detrimental effect on politics, be as nothing against the influence of a few railroad princes, who now, gathering around a table in a private office, and discussing political situations, actual and desirable, can sign checks for ten, fifty, a hundred thousand, or even, if need be, for a million dollars for “campaign expenses.”

Therefore all direct Government grants to public service corporations or to individuals having public service in view should at once stop; and all such grants hitherto made should be revoked or taken over into public hands.

Next Week: Grants and Immunities in the Courts

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Arts & Letters

Geonomics is …

a scientific look at how we divvy up the work and the wealth, how some of us end up with too much or too little effort or reward. That’s partly due to Ricardo’s Law of Rent, showing how wasteful use of Earth cuts wages. And it’s partly due to how a society’s elite runs government around like water boys, dishing out subsidies and tax breaks. While geonomists look political reality right in the eye, without blinking, conventional economists flinch. When Paul Volcker, ex-chief of the Federal Reserve, moved on to a cushy professorship at Princeton cum book contract, the crush of deadlines bore down. So Volcker asked a junior associate to help with the book. The guy refused, explaining that giving serious consideration to policy would ruin his academic career. The ex-Fed chief couldn’t believe it and asked the department chair if truly that were the case. That head honcho pondered the question then replied no, not if he only does it once. And economics was AKA political economy!

shaped by reality. In the 1980′s, the Swedish government doubled its stock transfer tax. Tax receipts, however, rose only 15%, since traders simply fled to London exchanges. Fearing a further exodus, the Swedish government quickly rescinded the tax altogether. (The New York Times, April 20) That willingness to tax anything leads us astray. Pushing us astray is that unwillingness to pay what we owe: rent for land, our common heritage. Assuming land value is up for grabs, we speculate. We cap the property tax on both land and buildings and the rate at which assessments can go up; while real market values rise quicker, assessments can never catch up. Our stewards, the Bureau of Land Management, routinely sell and lease sites below market value, often to insiders, says the Government Accounting Office. Once we grasp that rent is ours to share, we’ll collect it all, rather than let it enrich a few, and quit taxing earnings, which do belong to the individual earner. That shift is geonomic policy.

suitable for framing by Green Parties. When Greens began in Germany two decades ago, they defined themselves as neither left nor right but in front. Geonomics fits that description. The Green Parties have their Four Pillars; geonomists have four ways to apply them:

Ecological Wisdom. Want people to use the eco-system wisely? Charge them Rent and, to end corporate license, add surcharges. To minimize these costs, people will use less Earth.

Nonviolence. Want people to settle disputes nonviolently? Set a good example; don’t levy taxes, which rely on the threat of incarceration, to take people’s money. Try quid pro quo fees and dues.

Social Responsibility. Want people to be responsible for their actions? Don’t make basic choices for them by subsidizing services, addicting them to a caretaker state. Let people spend shares of social surplus.

Grassroots Democracy. Better have grassroots prosperity. Remember, political power follows economic. Pay people a Citizens Dividend; to keep it, they’ll show up at the polls, public hearings, and conventions.

a way to connect the dots. Making the cyber rounds is “The Cavernous Divide” by Scott Klinger, from AlterNet (posted March 21): “As the number of billionaires in the world expands, so does the number of those in poverty.” Duh. The yawning income gap is not news. Nearly every issue of our quarterly digest carries a similar quote. Yet the connection was worked out long ago by one of America’s greatest thinkers, Henry George, who labeled his masterpiece, Progress and Poverty. Techno- and socio-advances always enrich few and impoverish many. Yet progress also pushes up location values – the geonomic insight (is Silicon Valley cheaper now or more expensive?). Instead of taxing income, sales, or buildings, society could collect those values of sites, resources, EM spectrum, and ecosystem services via fees and dues, which would lower the income ceiling, and instead of lavishing corporate welfare, pay out the recovered revenue via dividends, which would jack up the income floor. Dots connected.

not a panacea, but like John Muir said, “pull on any one thing, and find it connected to everything else.” Recall last month’s earthquake in El Salvador. We felt it and its formidable after-shocks in Nicaragua. Immediately afterwards, my host nation, one of the poorest in the Western Hemisphere, sent aid to its Central American neighbor. The Nica newspapers carried photos of the devastation. They showed that the cliff sides that crumbled had had homes built on them while the cliffs left pristine withstood the shock. Could monopoly of good, safe, flat land be pushing people to build on risky, unstable cliffs? If so, that’s just one more good reason to break up land monopoly. What works to break up land monopoly, history shows, is for society to collect the annual rental value of the underlying sites and resources. That’d spur owners to use level land efficiently, so no one would be excluded, forced to resort to cliffs. To prevent another man-induced landslide is yet another reason to spread geonomics.

not exactly Georgism, the Single Tax on land value proposed by Henry George. He did, tho’, inspire most of the real-world implementations of the land tax that some jurisdictions enjoy today, and modern thinkers to craft geonomics. While his name and our remedy both begin with “geo” since both words refer to “Earth”, the two have their differences. (a) George pegs land monopoly as the fundamental flaw while geonomics faults Rent retention. (b) To fix the flaw, George was content to use a tax, while geonomics jettisons them in favor of price-like fees. (c) George focused on the taking while geonomics headlines the sharing. George envisioned an enlightened state judiciously spending the collected Rent while geonomics would turn the lion’s share over to the citizens via a dividend. (d) And George, as was everyone in his era, was pro-growth while geonomics sees economies as alive, growing, maturing, and stabilizing. Despite these differences, George should be recognized as great an economist as Euclid was a geometrician.

more transformation than reform; it’s a step ahead. Harvard economics students this year did petition to change the curriculum, in the wake of the English who caught the dissension from across The Channel. French reformers, who fault conventional economics for conjuring mathematical models of little empirical relevance and being closed to critical and reflective thought, reject this “autism” – or detachment from reality – and dub their offering “post-autistic economics”. Not a bad name, but again, academics define themselves by what they’re not, not by what they are, unlike geonomists. We track rent – the money we spend on the nature we use – and watch it pull all the other economic indicators in its wake. We see economies as part and parcel of the ecosystem, similarly following natural patterns and able to self-regulate more so than allowed, once we quit distorting prices. To align people and planet, we’d replace taxes and subsidies with recovering and sharing rents.

what you do when you see economies as part of the ecosystem, following feedback loops and storing up energy. Surplus energy – fat or profit – enables us to produce and reproduce. To recycle society’s surplus, the commonwealth, geonomics would replace taxes with land dues (charged to users of sites and resources, in-cluding the EM spectrum, and extra to polluters), and replace subsidies with rent dividends to citizens (a la Alaska’s oil dividend). Without taxes and subsidies to distort them, prices become precise, reflect accurately our costs and values; then, motivated by no more than the bottom line, both producers and consumers make sustainable choices. While no place uses geonomics in its entirety, some places use parts of it, most notably a shift of the property tax off buildings, onto locations. Shifting the property tax drives efficient use of land, in-fills cities, improves the housing stock, makes homes affordable, engenders jobs and investment opportunities, lowers crime, raises civic participation, etc – overall it makes cities more livable. Geonomics – a way to share the bounty of nature and society – is something we can work for locally, globally, and in between.

what you do when you see economies as part of the ecosystem, following feedback loops and storing up energy. Surplus energy – fat or profit – enables us to produce and reproduce. To recycle society’s surplus, the commonwealth, geonomics would replace taxes with land dues (charged to users of sites and resources, including the EM spectrum, and extra to polluters), and replace subsidies with rent dividends to citizens (a la Alaska’s oil dividend). Without taxes and subsidies to distort them, prices become precise, reflect accurately our costs and values; then, motivated by no more than the bottom line, both producers and consumers make sustainable choices. While no place uses geonomics in its entirety, some places use parts of it, most notably a shift of the property tax off buildings, onto locations. Shifting the property tax drives efficient use of land, in-fills cities, improves the housing stock, makes homes affordable, engenders jobs and investment opportunities, lowers crime, raises civic participation, etc – overall it makes cities more livable. Geonomics – a way to share the bounty of nature and society – is something we can work for locally, globally, and in between.

a manual. The world did not come without a way for people to prosper, and the planet to heal and stay well; that way is geonomics. Economies are part of the ecosystem. Both generate surpluses and follow self-regulating feedback loops. A cycle like the Law of Supply and Demand is one of the economy’s on/off loops. Our spending for land and resources – things that nobody made and everybody needs – constitutes our society’s surplus. Those profits without production (remember, nobody produced Earth) can become our commonwealth. To share it, we could pay land dues in to the public treasury (wouldn’t oil companies love that?) and get rent dividends back, a la Alaska’s oil dividend. Doing so let’s us axe taxes and jettison subsidies. Taxes and subsidies distort price (the DNA of exchange), violate quid pro quo by benefiting the well-connected more than anyone else, reinforce hierarchy of state over citizen, and are costly to administer (you don’t really need so much bureaucracy, do you?). Conversely, land dues motivate people to not waste sites, resources, and the ecosystem while rent dividends motivate people to not waste themselves. Receiving this income supplement – a Citizens Dividend – people can invest in their favorite technology or outgrow being “economan” and shrink their overbearing workweek in order to enjoy more time with family, friends, community, and nature. Then in all that free time, maybe we could figure out just what we are here for.